BILL ANALYSIS                                                                                                                                                                                                    



                                        
                       SENATE LOCAL GOVERNMENT COMMITTEE
                            Senator Dave Cox, Chair


          BILL NO:  SB 841                      HEARING:  3/3/10
          AUTHOR:  Committee on Local GovernmentFISCAL:  No
          VERSION:  2/11/10                     CONSULTANT:  Detwiler
          
                     FIRST VALIDATING ACT OF 2010 (URGENCY)

                           Background and Existing Law  

          For over 70 years, the Legislature's annual Validating Acts  
          have boosted the stability and credit ratings of state and  
          local bonds.  The Validating Acts cure public officials'  
          mistakes that might otherwise invalidate boundary changes  
          or bond issues.  They also correct errors or omissions by  
          local agencies and state departments.  The Acts do not  
          protect against fraud, corruption, or unconstitutional  
          actions.


                                  Proposed Law  

          Senate Bill 841 validates the organization, boundaries,  
          acts, proceedings, and bonds of the state government,  
          counties, cities, special districts, school districts, and  
          redevelopment agencies, among other public bodies.


                                     Comments  

          1.   To err is human, to forgive is legislative  .  The annual  
          Validating Acts protect investors from the chance that a  
          minor error might undermine the legal integrity of a public  
          agency's bond.  Banks, pension funds, and other investors  
          will not buy public agencies' securities unless they are  
          sound investments.  Investors rely on legal opinions from  
          bond counsels to assure the bonds' credit worthiness.   
          Without legislative action to cure technical errors, bond  
          counsels are reluctant to certify bonds as good credit  
          risks.  SB 841 gives legislative protection to public  
          agencies and private investors.

          2.   Which mistakes  ?  The Validating Acts cure  
          typographical, grammatical, and procedural errors.  They do  
          not forgive fraud, corruption, or unconstitutional acts.  A  
          local official who makes a technical error will find  




          SB 841 -- 2/11/10 -- Page 2



          reassurance in the Validating Acts, while a corrupt  
          official faces prosecution regardless of the Acts.

          3.   Taxpayers benefit too  .  By insulating state and local  
          bonds against harmless errors, the Validating Acts save  
          taxpayers' money.  Strong legal opinions from bond counsels  
          result in higher credit ratings for state and local bonds.   
          Higher credit ratings allow state and local officials to  
          pay lower interest rates to private investors.  Lower  
          borrowing costs save money for taxpayers.

          4.   Why three  ?  Starting in the mid-1920s, the Legislature  
          passed separate validating acts for different types of  
          bonds, several classes of special districts, and various  
          local boundary changes.  By the late 1930s, the practice  
          was to pass annual comprehensive validating acts (AB 2842,  
          Bennett, 1939).  The current custom and practice is to pass  
          three Validating Acts that retroactively cure public  
          officials' mistakes.  The first two measures are urgency  
          bills that go into effect when they are chaptered.  SB 841  
          (First Validating Act) will probably reach Governor  
          Schwarzenegger's desk this spring, validating errors made  
          before the date on which the bill is chaptered.  SB 842  
          (Second Validating Act) will reach Governor Schwarzenegger  
          in August, validating mistakes made after SB 841.  The  
          Third Validating Act (SB 843) will take effect on January  
          1, 2011, covering the period between the chaptering of SB  
          842 and the end of 2010.


                         Support and Opposition  (2/25/10)

           Support  :   State Controller John Chiang, State Treasurer  
          Bill Lockyer, American Federation of State, County and  
          Municipal Employees AFL-CIO, California Association of  
          LAFCOs, California Association of Sanitation Agencies,  
          California Public Securities Association, California  
          Special Districts Association, California State Association  
          of Counties, League of California Cities, Regional Council  
          of Rural Counties, Urban Counties Caucus, County of  
          Sacramento.

           Opposition  :  Unknown.








          SB 841 -- 2/11/10 -- Page 3